Taxation and reporting of Gift Vouchers under GST
The use of gift vouchers or prepaid vouchers/cards in businesses has gained popularity, not only in B2C transactions but also in B2B transactions. Some of the situations where gift vouchers are used can be –
- Gift/Prepaid vouchers issued by stores such as Westside, Shopper’s Stop, Lifestyle, etc., to their customers, i.e., B2C transaction,
- Gift/Prepaid vouchers are issued by companies to their employees for redemption at grocery stores, restaurants etc., i.e., B2B transaction between voucher issuer and the company purchasing the vouchers,
- Gift/Prepaid vouchers are given by companies to their dealers and franchisees by companies as incentive for achieving targets or on festive occasions etc., i.e. B2B transaction,
- Gift/Prepaid vouchers are purchased by banks or fulfilment agencies for issuing to the bank or credit card customers for redemption of loyalty points, i.e., B2B transaction between voucher issuer and the bank/credit card/fulfilment company purchasing the vouchers.
Types of Gift/prepaid vouchers:
Broadly, we find two types of Gift/prepaid vouchers –
- Gift/Prepaid vouchers that can be redeemed only against a specific product or service. In this article, we will refer to these kind of vouchers as ‘Specific vouchers’. Examples of specific vouchers are gift vouchers that can be redeemed at an ice-cream store only for purchase of ice-cream, or a gift voucher entitling the holder membership at a gymnasium for a fixed period, and,
- Gift/Prepaid vouchers that can be redeemed against multiple goods, or services or both. In this article, we will refer to these kind of vouchers as ‘General vouchers’. Examples are, gift or prepaid vouchers issued by a hotel which can be redeemed against accommodation services or against restaurant or health club services etc., or voucher issued by a department store which can be redeemed against purchase of multiple products such as garments, footwear, electronics, cosmetics, etc.
The GST impact on both types, specific and general Gift/Prepaid vouchers is to be examined from two angles –
- Time of supply, and,
- Value of supply.
Time of supply of Gift/Prepaid Vouchers:
The ‘Time of supply’ determines when the GST on supply of goods or services becomes due and payable. For this we refer to Section 12(4) and Section 13(4) of the CGST Act, 2017. Accordingly;
| Section 12(4) | Section 13(4) |
| Time of supply of Goods | Time of supply of Services |
| In case of supply of vouchers by a supplier, the time of supply shall be- (a) the date of issue of voucher, if the supply is identifiable at that point; or (b) the date of redemption of voucher, in all other cases. | In case of supply of vouchers by a supplier, the time of supply shall be–– (a) the date of issue of voucher, if the supply is identifiable at that point; or (b) the date of redemption of voucher, in all other cases. |
As the readers will note, the ‘time of supply’ of vouchers redeemable against goods and vouchers redeemable against services is the same.
- In case of vouchers where the supply is identifiable, i.e., ‘Specific Vouchers’ which can be redeemed only against specific goods or services, GST will become due and payable in the month/quarter in which the vouchers are supplied. The reason is simple, as the voucher can be redeemed only against specified goods or specified services, the applicable rate of GST is known in advance, hence GST is collected at the first point when the vouchers are supplied.
- In case of vouchers where the supply is not identifiable, i.e., ‘General Vouchers’ which can be redeemed against multiple goods, services or both, GST will become due and payable at the tome of redemption of the voucher. The reason being that the ‘General voucher’ can be redeemed against goods or services or both which could be taxable at different rates or even exempt from GST. Hence, the actual GST impact can be known only when the customer redeems the voucher.
Value of supply of Gift/Prepaid Vouchers:
As per Section 15(1) of the CGST Act, 2017, the value of supply of Gift/Prepaid Vouchers will be the transaction value excluding GST, i.e., the net value of goods or services redeemed against the voucher.
In order to understand time of supply and value of supply, we look at the following illustration in case of both specific and general Gift/Prepaid vouchers.
Illustration of payment of GST on Gift/Prepaid vouchers:
| Specific Gift/Prepaid vouchers |
| Voucher issued in April 2020, for Rs.1,000/- redeemable against goods or services taxable @ 18%. |
| The voucher amount of Rs.1,000/- includes GST @ 18%. Hence, GST Rs.153/- will be paid by the issuer to government treasury through GSTR-3B of April 2020. |
| Customer redeems the voucher in June 2020 for goods worth Rs.1,000/- inclusive of GST @ 18% |
| GST of Rs.153/- is recovered by the issuer from the customer. |
| GST paid to government by the issuer in April 2020, Rs.153/-GST recovered from customer by the issuer in June 2020, Rs.153/- |
| General Gift/Prepaid vouchers | ||||||||||||||||||||
| Voucher issued in April 2020, for Rs.1,000/- redeemable against goods or services taxable at various rates, including exempt goods or services. | ||||||||||||||||||||
| The issuer will not pay any GST in the GSTR-3B filed for month of April 2020 because there is no way of determining the applicable tax rate till the time voucher is redeemed. | ||||||||||||||||||||
Customer redeems the voucher in June 2020 for goods worth Rs.1,000/- inclusive of GST as under:
| ||||||||||||||||||||
| GST recovered from customer by the issuer in June 2020, Rs.114/-GST paid to government by the issuer in April 2020, Rs.114/- |
Nature of supply of Gift/Prepaid vouchers:
The various types of supply under GST law are as under –
- Taxable supply – Supply which is taxable as per applicable rate schedule under GST,
- Exempt supply – Supply covered under exemption notification for goods or services,
- Zero-rated supply – Export of goods or services or supplies to SEZ,
- Non-GST supply – Supply of goods or services not covered under GST law, for example, Petroleum products, Alcohol, Goods or services covered in Schedule III of the CGST Act, 2017, etc.
The question now is to identify the type of supply in case of general Gift/Prepaid vouchers, where the rate of tax is not identifiable at the time of issue of the said vouchers. We present the following arguments to the reader –
| Type of supply | Are ‘General’ Gift/Prepaid vouchers covered? |
| Taxable supply – Supply which is taxable as per applicable rate schedule under GST | Issuing ‘General’ Gift/Prepaid vouchers to a person is not a taxable supply because the supply has not occurred at the when the vouchers are supplied. As per Section 12(1) and Section 13(1) the liability to pay tax on supply of gift vouchers will arise at the time of supply. |
| Exempt supply – Supply covered under exemption notification for goods or services | Issuing ‘General’ Gift/Prepaid vouchers to a person is not an exempt supply because ultimately, GST may be payable at the time of redemption. |
| Zero-rated supply – Export of goods or services or supplies to SEZ | Issuing ‘General’ Gift/Prepaid vouchers to a person in India does not fulfil the conditions for Zero rating, hence, not a zero-rated supply. |
| Non-GST supply – Supply of goods or services not covered under GST law | Issuing ‘General’ Gift/Prepaid vouchers redeemable against goods or services covered under GST law is not a ‘non-GST’ supply. |
| In view of the above, ‘General’ Gift/Prepaid vouchers would constitute ‘No Supply’ when these are issued to a customer. | |
Reporting the ‘General’ Gift/Prepaid vouchers in GSTR-1 and GSTR-3B:
Quite clearly, the supply of ‘General’ Gift/Prepaid vouchers is not covered under any of the supply categories. Under the circumstances, where should this turnover be reported in GSTR-1 and GSTR-3B?
In our view, the supply of ‘General’ Gift/Prepaid vouchers cannot be reported either in GSTR-1 or in GSTR-3B because there is no provision for reporting ‘No Supply’ in both of the said returns.
Reporting the ‘No Supply’ – ‘General’ Gift/Prepaid vouchers in GSTR-9:
We refer to the instructions for filing form GSTR-9 issued by the department. Accordingly, ‘No Supply’ is to be reported under row 5 (F) of Form GSTR-9.
What is the HSN/SAC code to be mentioned in the invoice for supply of ‘General’ Gift/Prepaid vouchers:
- As discussed in this article, the time of supply of vouchers (where the supply is not identifiable) does not arise till the time of redemption of such vouchers. Consequently, the liability to pay GST on such vouchers also arises at the time of such redemption.
- As a corollary to the above, it can be said that when the time of supply has not arisen, there is no supply. Hence, strictly speaking, the question of raising a tax invoice or even a bill of supply does not arise in case of gift vouchers where the supply is not identifiable. [This is from the GST point of view. Raising an invoice would be mandatory for compliances under Income tax and other applicable laws.]
- HSN or SAC codes are required to be mentioned only in case where a tax invoice or bill of supply is issued for supply of goods or services. In case of gift vouchers where the supply is not identifiable, there is no supply.
- In view of the above, there is no requirement to mention the HSN/SAC codes where gift vouchers (where the supply is not identifiable) are issued. In case of gift vouchers where the supply is identifiable, the appropriate HSN/SAC code applicable to the supply is to be mentioned and the applicable rate of tax has to be charged.
Recent advance ruling on Gift Vouchers:
- In a recent advance ruling issued by the AAR, Tamil Nadu [In re: M/S. Kalyan Jewellers India Limited], the AAR has held that the supply of gift vouchers or smart cards (E-Vouchers) are taxable at the point of issue. The rate of tax and HSN codes as held by the AAR are as mentioned hereunder –
Physical vouchers:
| Sr.No. | HSN | Description | CGST | SGST |
| 132. | 4911 | Other printed matter, including printed pictures and photographs; such as Trade advertising material, Commercial catalogues and the like, printed Posters, Commercial catalogues, Printed inlay cards, Pictures, designs and photographs, Plan and drawings for architectural engineering, industrial, commercial, topographical or similar purposes reproduced with the aid of computer or any other devices | 6% | 6% |
E-Vouchers:
| Sr.No. | HSN | Description | CGST | SGST |
| 382. | 8523 | Discs, tapes, solid-state non-volatile storage devices, “smart cards” and other media for the recording of sound or of other phenomena, whether or not recorded, including matrices and masters for the production of discs, but excluding products of Chapter 37 | 9% | 9% |
- In giving this ruling, the AAR has ignored some relevant facts, or probably, appropriate facts were not brought to light. The fact that taxing such vouchers at the point of supply without reference to the rate of tax applicable to the underlying goods or services would likely result in double taxation because the appropriate tax would also have to be paid at the time of redemption of the said vouchers. We believe the CBIC should clarify the position in case of gift vouchers, especially in the light of the advance ruling.
We trust we have been of some help in answering some frequently asked questions on taxation of Gift/Prepaid Vouchers under GST. Questions or comments of readers on this article are welcome.
Dipen Lathi,
Chartered Accountant
www.Lathico.com
DISCLAIMER : No assurance is given that the revenue authorities/ appellate authorities/ courts would concur with the views expressed herein. Our views are based on the existing provisions of law and our interpretation thereof. We do not assume responsibility to update the views consequent upon such changes, if any. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.
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